The Lithuanian parliament has approved the government’s proposal to impose a “temporary solidarity contribution” payable by all banks and credit institutions, a charge estimated to earn more than 400 million euros in the face of growing financial profits.
According to the law, the charge will be 60% of banks’ net interest revenue that surpasses the four-year average by more than 50%. It is expected to generate EUR 410 million for the government’s budget, which will be utilized to strengthen the military.
Prior to the charge, which was first proposed by the Lithuanian central bank, the Baltic country anticipated to spend EUR 1.9 billion on defense in 2023, or 2.52% of GDP.
Lithuania, a NATO member, shares borders with Russia and its ally Belarus.
Spain approved a temporary windfall tax on banks in December, collecting 4.8% on net interest income and net commissions above an EUR 800 million threshold.
Lithuania’s government maintained that rising interest rates provide “economic rent” to its banks, with profits expected to be twice as large in 2023 as they were last year.
“Rent in the economy should be treated as a distorting and unjust phenomenon,” it said in a submission to the parliament. “It is appropriate to redistribute the large unplanned increase in bank profits by applying fiscal measures, thereby correcting market imperfections.”
In early April, the European Central Bank stated that imposing a financial contribution on Lithuanian banks “may have negative economic consequences by making credit institutions less resilient to economic shocks.”
Swedish holdings – Swedbank, whose 2022 profits in Lithuania climbed by 64% to EUR 148 million, and SEB, whose profits increased by 49% to EUR 172 million, own more over half of Lithuania’s banking assets.
British fintech firm Revolut owns the third-largest bank, with about one-fifth of total assets, serving the European Union and European Economic Area, with Lithuanian residents accounting for less than 2% of the customer base.
According to the Lithuanian Banking Association, the legislation was developed without a sufficient effect analysis and without taking into account bank ideas.
“It’s really sad for the largest and most loyal investors (the banks) that yet another chaotic, anti-Constitutional idea to tax the sector is destroying the idea that Lithuania is a reliable state, with a transparent and predictable tax environment”, it said in a statement.
Finance Minister Gintarė Skaistė has said that deposits held by the Lithuanian banking system currently exceed loans by EUR 11 billion. The funds are held risk-free at the European Central Bank, she has noted, which pays interest to banks on their deposits.